So Donald Trump is 'likely' to bring on a recession?
Writing over at Fortune magazine, Jen Wieczner notes that Donald Trump is likely to bring on a recession, because that's what Republican presidents always do:
That's because a recession has happened every single time a Republican has been in the White House since William McKinley was president in 1900, according to a new report by S&P Capital IQ. In other words, if Trump won and somehow averted his own dire forecast, he would be the first GOP leader in more than a century to keep the U.S. economy growing while in office.
In Ms. Wieczner's view, "Democrats, on the other hand, have a significantly better track record. President Barack Obama is on track to become the fourth Democratic president – and the second in a row after Bill Clinton – to avoid a recession starting on his watch."
There is far too much wrong with this superficial article.
We'll start with Clinton avoiding a recession, supposedly. According to the Federal Reserve, the 2001 recession began in March under George W. Bush – as that would be when the problematic and subjective technical definition of a recession says it did. But a closer look at the data reveals that the recession undoubtedly began under Clinton.
From 1993 Q1 through 2000 Q2, real per capita GDP grew fairly steadily under Clinton, but between 2000 Q2 and 2000 Q4, it abruptly flatlined, increasing only 0.15%. If we assign 2001 Q1 performance to Clinton rather than Bush – a tactic pro-Democratic economic analysts use in return when Q1 is unfavorable to their team (such as for Obama), so turnabout is fair play – then real per capita GDP declined 0.4% during the last few quarters of the Clinton presidency. Between when Bush took office and the end of the 2001 recession, real per capita GDP declined a further 0.3%.
And Bush gets the blame? An absurd conclusion.
Even official unemployment rate trends point towards the recession starting at the end of Clinton's second term. Between April 2000 – the low point of seasonally adjusted unemployment under Clinton – and December 2000, the unemployment rate stopped decreasing and began to reverse trend, going from 3.8% to 3.9%. This, coupled with the flatlining of inflation-adjusted GDP, signified a major problem in the economy.
Then, between December 2000 and January 2001, the unemployment rate increased dramatically from 3.9% to 4.2% and kept on increasing through the 2001 recession. We can argue about whether or not a president who assumes office on January 20 owns the economic performance for Q1, but clearly he cannot be responsible for the January performance.
And this was not some usual December-to-January trend. For all the other December-to-January transitions under Clinton, the unemployment rate was effectively constant, never increasing or decreasing more than 0.1%, and decreasing or staying the same more often than increasing.
Clinton owns the 2001 recession, not Bush.
The other obvious problem in Wieczner's article is the use of misleading phrases such as "if Trump won and somehow averted his own dire forecast, he would be the first GOP leader in more than a century to keep the U.S. economy growing while in office." Sloppy journalism 101, which is reinforced by the following quote from her article:
Besides Obama and Clinton, Presidents John F. Kennedy and Lyndon B. Johnson, who served consecutively, are the other Democratic Commanders In Chief to stave off an economic downturn during their terms. By comparison, their GOP predecessor, President Dwight D. Eisenhower, presided over three recessions while in office, according to S&P Capital IQ.
The way to assess a president's economic performance is not whether or not he has had a recession, or even several. It is to look at the cumulative economic growth during their term. Using the flawed reasoning from this Fortune article, it would be better to have negligible economic growth and no recessions than to have strong economic growth and one or more recessions – a ridiculous metric for assessment.
Take Ronald Reagan's presidency. In spite of the 1981-82 recession, real per capita GDP still grew 23.2% over his eight years in office. Clinton had no recessions, and yet his real per capita GDP growth was below Reagan, coming in at 22.8%. Growth so far under "no recessions started on my watch" Obama has been just 7.0%.
Simply counting recessions appears to be a rather useless approach, especially since a recession is often the inevitable result of a needed shift in fiscal policy – the short-term pain for long-term gain argument. Carter left Reagan a sputtering economic mess that required a reboot, as did Clinton leave Bush 43 the same issue. Unfortunately, Bush 43 started making progressively less prudent economic decisions, and the last part of his presidency turned into an economic disaster.
Eight years later, though, and Obama has no excuses. By the time his first term was done, Reagan already didn't need to make any excuses for Carter's pile of particularly smelly residual economic sludge deposited on the White House lawn by January 1981. Economic reforms had turned the ship around. Too bad the current president can't make the same claim of economic rehabilitation, in spite of nearly two terms under his belt.